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Paper Reports that Home Loans are Available to Many In as Little as a Year after Bankruptcy Filing

Many people who file bankruptcy fear that it will be years before they can buy a home (perhaps for the first time) because the bankruptcy will be on their credit report for 7 to 10 years. However, the New York Times reported last week that this fear is unfounded for many, with some mortgages becoming available to some consumers in as little as a year after bankruptcy has been discharged.

According to the paper, those who file for Chapter 13 bankruptcy protection qualify for a mortgage guaranteed by the Federal Housing Administration (FHA) one year after discharge, and those that file for Chapter 7 qualify in two years.

Of course, consumers will have to work on managing their credit following their bankruptcy discharge to improve their score. This can be done by paying bills on time and using credit responsibly.

HandShake_07312014Financial advisors say that using one or two credit cards with a small balance and paying them off regularly is a great way to rebuild your score after a bankruptcy. If you can't qualify for an unsecured card, then you may be able to get a secured card (one that is backed by a cash deposit) from your bank.

Though a bankruptcy does remain on your credit report for up to 10 years, it is not a financial death sentence. As this report shows, consumers can get approved for new credit relatively quickly following a bankruptcy discharge, and responsible financial management can quickly bring your score back up.

In most cases, filing for bankruptcy is a powerful tool in helping consumers who have become overwhelmed by debt to take charge of their finances and get back on the road to recovery. For many consumers, if they do not file for bankruptcy, they will struggle with overwhelming debts for years, leaving them unable to move forward with purchases like a car or new home. For those consumers, bankruptcy makes financial progress possible.

North Carolina Bankruptcy Lawyers

If you are in over your head in debt, a North Carolina bankruptcy lawyer at the Law Offices of James Scott Farrin may be able to help you. Call our offices at 1-866-900-7078 for a free consultation and to find out how bankruptcy may be able to help you!

10 Things NOT to Do if You are Going to File for Bankruptcy

There are many times we look back and think, "I wish I had not done that!" Lawyers may also think "I wish they [my client] had not done that," too.

You can't change the past, but wouldn't it be nice to know what you should try and avoid ahead of time when possible? With that in mind, I have come up with this list of 10  things NOT to do if you are going to file for bankruptcy.

In an effort to keep this list simple and clear, I have kept out all of the qualifiers we lawyers like to include. I could have taken up pages and pages with this list if I wanted to include every possible exception or defense. I always suggest talking about your specific situation with a bankruptcy lawyer so that you can best determine what to expect in filing a bankruptcy case. But this is a good general list of guidelines for things to avoid doing if you are thinking about filing a bankruptcy:

1. Don't Pay Back Family Members

Relatives are "insiders" under the Bankruptcy Code. If you pay back money to an "insider" during the 12-month period before you file a bankruptcy petition, it can be considered a "preference" and it can be undone by the trustee. In other words: The court may go after your relative to get the money back.

The trustee can ask for the money back, but if this does not work, the trustee can sue your family member in federal court for return of the funds.

Avoid this situation and just list your mom, dad, or other relative as a creditor (because they are a creditor), and you can tell them, if you want, that you'll do your best to pay them back after your case is filed. You may actually be doing them a favor!!

2. Don't Take Out a Large Cash Advance

If you take out a cash advance of more than $875* within 70 days of filing a bankruptcy case, a creditor may file a lawsuit in bankruptcy court to declare these funds as non-dischargeable. This means you would still owe this debt after your bankruptcy case is over. Cash advances include both credit card cash advances and pay day loans.

If you are thinking about filing for bankruptcy, don't borrow any money you don't have to - or any money that you can't afford to pay back.

3. Don't Buy Luxury Goods on Credit

If you make a "luxury" purchase of $600 or more* within 90 days of filing a bankruptcy case, this is also considered to be non-dischargeable and you may find yourself still owing the creditor for these debts after your case is done.

Luxury goods can include items such as clothes, electronics, or other personal goods that are not "reasonably necessary" for day-to-day support and maintenance.

4. Don't Incur New Debt

Don't run up a lot of debts or go out taking out new debt that you have no intention of paying. If you do, you may find yourself the subject of a legal action.

At a minimum, the court could determine that this debt must be repaid, so you would still owe the money when your case was discharged. At most, you could face fees and other penalties.

5. Don't Pay off Some of Your Credit Cards and Expect to Keep Them

While it's true that you do not need to identify a credit card company as a creditor if your balance due on the date your bankruptcy petition is filed is $0, this does not mean that you will get to keep that credit card.

You have to identify any payments over $600** to a single creditor during the 90-day period before you file your bankruptcy case. These payments are "preference" payments, and just like with a family member, the trustee can sue the creditor to return the funds to be redistributed amongst your other creditors.

Also, in my experience, credit card companies will often cancel your card as soon as it discovers you are in a bankruptcy. (They will know because the bankruptcy is reflected on your credit report.) Therefore, you may pay off the credit card before you file in an effort to keep it, but the company may cancel your card anyway. You're out the cash and the card.

ComputerMouse_050720146. Don't Sell or Give Away Valuable Property

Selling or giving away property is considered to be a transfer of that property. You are required to identify all transfers that took place within a 2-year period of filing your bankruptcy case. Transfers can include selling a couch on Craig's list or eBay, holding a yard sale, gifting money to a family member, or selling your car.

Many transfers are allowable, such as selling your car for market value or holding a yard sale. However, if you gave a relative money or you sold your car to your nephew for $500 when it is actually worth $2,000, this would be considered a "fraudulent conveyance" under the Bankruptcy Code.

If you sold or gave away property for less than its value before filing a bankruptcy case, the trustee can go after these just like "preference" payments to family members.

7. Don't Hide Things from Your Attorney

Your attorney can only give you advice based on information you provide.

Failing to identify property you own, intentionally undervaluing your property, omitting a "preference" payment or "transfer" that you think may create a problem, or otherwise providing false information can have serious consequences. Not only can your discharge be denied (meaning that you will still owe all of your debts),
but your case can also be turned over to the U.S. Attorneys' Office for prosecution of bankruptcy fraud. If found guilty, you could face time in federal prison and/or a hefty fine.

Give your attorney all the information so you can discuss ways to solve potential problems before they become even bigger problems.

8. Don't Wipe Out Your Retirement Account

Most retirement accounts are protected from your creditors and the bankruptcy trustee. If you do not have enough in your retirement to fully resolve all of your debt issues - and handle the tax consequences of the withdrawn funds - it is generally not advisable to do so.

Pulling money out of your protected retirement accounts so that you can maintain the minimum payments on your credit card bills or medical bills is often just delaying an inevitable financial crisis. You may find yourself still owing a lot of debt - and in need of filing a bankruptcy anyway - and then you also have no retirement left.

This one particularly breaks my heart when it is an elderly client that does not have as much time to rebuild retirement funds.

9. Don't Wipe Out Your Savings Account

Savings accounts, unlike retirement accounts, are often not protected or not fully protected from your creditors and the bankruptcy trustee. It depends on what other assets you have and what exemptions are available to you.

However, you don't want to use your limited savings funds to pay down credit card debts and medical bills when you also have car payments or mortgage payments. Unsecured debts may be able to be discharged in a bankruptcy, while house and car payments may not.

You also may want to have some of these funds to pay for filing your bankruptcy case. Do you want to spend $5,000 or more barely putting a dent in your overall debt or spend less then $2,000 to wipe out all or most of your debt in a Chapter 7 bankruptcy case?

10. Don't Commingle Protected Funds

Some forms of income are fully protected, such as personal injury funds, workers' compensation benefits, and Social Security funds (disability or income). A portion of your income is generally protected, as well.

You don't want to mix these funds together because it can become hard to identify what portion of the money in your bank account is from a personal injury award 3 months ago and what portion is from your earnings from the past 60 days. Be sure to maintain separate accounts so all sources of income can be clearly identified.

If you ever have questions about how bankruptcy laws may apply to your case, simply contact a bankruptcy lawyer. Call me at 1-866-900-7078 for a free consultation of your case to find out how bankruptcy may be able to help you!

* These amounts are adjusted every 3 years pursuant to Section 104 of the Bankruptcy Code.

** The amount listed is for individuals filing a bankruptcy with primarily consumer debts. The "preference" amount for a bankruptcy filer whose debts are primarily non-consumer debts is currently $5,850 (but this too is adjusted every 3 years pursuant to Section 104 of the Bankruptcy Code).

Don’t Wait Until It’s Too Late to Call a Bankruptcy Lawyer!

Frustrated3_06032014A common scenario I run into as a bankruptcy lawyer is that people will contact me because their home is in foreclosure and they want to find a way to save it, possibly by filing for bankruptcy. However, many of these people have let their mortgage fall so far behind that not even bankruptcy can help them. They waited too long to call a lawyer!

Unfortunately, the answer to my question "How many months are you behind on your mortgage?" is far too often "Years." Many people who call me have tried to work with their mortgage companies for months or years to get their loan modified, and the bank refuses to accept payment while negotiations are underway. Meanwhile, the sale date on foreclosure proceedings is delayed and they continue to rack up more late payments.

When the bank finally puts a stop to negotiations and refuses to accept any modifications to the loan, all of the mortgage payments that were delayed suddenly become due and the foreclosure proceedings that the homeowner may have thought would be delayed again move forward. Some of these people have become 2 years or more behind on their mortgage payments and have only a few weeks to come up with the past-due amount.

If these homeowners are now 2 years behind with a mortgage payment of $850 a month, that's $20,400 due immediately to save the house from being sold at foreclosure.

Not many of us have $20,400 sitting around - especially if we were already struggling to pay our mortgage.

Some of the people I talk to may have saved some money while they were negotiating with the mortgage company and weren't required to pay their mortgage payment. However, the amount they may have saved is usually far less than what they owe. This could be because:

  • A job loss or reduction in hours may have cut their income (causing them to fall behind on their mortgage in the first place).
  • The money that would have been spent on the mortgage was used on other living expenses for which there weren't funds.
  • Unexpected expenses or emergencies came up that required use of those savings.
  • The savings were used to pay down credit card bills or other debts, with the expectation that the mortgage would be modified.

 

What Bankruptcy Can Do For You

It is often when people find themselves on the eve of a foreclosure sale they thought would be postponed again but was not, and modification is off the table with as much as 2 years in past-due payments owed, that they call a bankruptcy attorney to try and save their home.

There are several types of bankruptcy, but when it comes to filing a bankruptcy with the purpose of trying to save your home from a foreclosure, Chapter 13 is generally the type of case filed. A Chapter 13 bankruptcy is a reorganization of debts that allows you to do things like catch up on your mortgage payments over the course of your bankruptcy payment plan.

Here's the catch: A Chapter 13 bankruptcy can only go up to 60 months (5 years). During this time, you must pay your current mortgage payment IN ADDITION TO the past-due amount that you owe. Mortgage, plus.

It comes down to the math. The further you are behind on your mortgage when you file a Chapter 13 bankruptcy case, the bigger your monthly payment must be to bring it current within the 5-year plan. You will also have some or all of your bankruptcy attorneys' fees and a trustee commission to pay in your plan, in addition to any late fees or back taxes.

It's not all bad news! A Chapter 13 bankruptcy offers many benefits if you are looking to reorganize your debts. You can reduce the interest you pay on a car loan and stretch out the payments. In some cases, you can reduce the balance you owe on your car loan, and credit card debts and medical bills can often be completely wiped out with little to no payments required. There are even some cases where you can "strip" off a second or third mortgage and treat that as a general unsecured claim (like a credit card).

Call a Bankruptcy Attorney before It's Too Late!

Don't wait until the mortgage company tells you that it won't modify your mortgage and that you now owe more than you could afford to pay!

Don't get me wrong. Modification, if it works, can be a great savior for home owners, particularly when income has declined and it is not going to go back up. However, there are no guarantees that the bank will accept your proposal, and if you wait too long before looking at other options, you may be out of options.

If bankruptcy is the right step for you, the sooner you file, the sooner you can take control of your debt and begin to pay it back (if you file Chapter 13) or the sooner you can free up some income by discharging your unsecured debts (most Chapter 13 cases and Chapter 7 cases).

The sooner you file, the less money you will pay in the long run in fees and penalties, as well, saving you a lot of money.

Don't think of bankruptcy as a measure of last resort! If you are behind on your mortgage or have become over you head in debt, bankruptcy may be a powerful tool to help you better manage your budget and take control of your finances.

Call me today at 1-866-900-7078 for a free consultation and to talk about your options. Don't wait until it's too late!

Should You File Chapter 7 or Chapter 13? Which One is Best?

This is a question I often hear, and my answer is always the same: It depends on which one will provide you with the best overall results for your situation!

Decisions_07312014Sometimes, when I meet with potential clients, they want to file a bankruptcy right away. Though that's not a problem, filing for bankruptcy is a big decision!

There are significant differences between Chapter 7 and Chapter 13 that can have long term affects after the case is over, so I always tell my clients to take a deep breath and look at why you want to file right away. Is it because something is about to happen, like your house is about to be foreclosed or the IRS is about to garnish your wages? Or, is it because you just made up your mind you want to do something and you want that "something" to start right away?

It's important to sit down with an attorney who can explain what the key differences are between Chapter 7 and Chapter 13 bankruptcy and how each one can best meet your needs and goals. You can then work with the attorney to determine what the most realistic option is for you.

Here are some of the main differences between Chapter 7 and Chapter 13 bankruptcy:

Chapter 7: Shorter process, lower attorney fees, and no monthly payments to a trustee

My general feeling is that if you can qualify for a Chapter 7, then you should file a Chapter 7. Why? It's a shorter process that lasts only about 4 months from the time you file until you get your discharge (that time at which your debts are cleared). A Chapter 13 filing can require 3 to 5 years of monthly payments to a trustee before you are entitled to a discharge.

A Chapter 7 also costs, on average, half the attorney fees of a Chapter 13. You may pay less in up-front attorney fees and costs before you file a Chapter 13 bankruptcy case, but you are paying, in many cases, double the attorney fees over the life of the case.

You have to pay your attorney fees when you file for Chapter 7 bankruptcy, which can make it difficult to file for some. However, the reason you pay for a Chapter 7 before you file and you can pay for a Chapter 13 after you file is this: A Chapter 7 is a straightforward liquidation with no payment plan, whereas a Chapter 13 requires a payment plan, which allows you to include payments for attorney fees in the plan.

Many of my clients can wait and save up the funds to file a Chapter 7, and in the long run, they often pay a lot less and are out of the bankruptcy process much sooner. As a result, they can rebuild their lives more quickly.

Chapter 13: Plan to bring mortgage payments current, modify a car loan, and pay-out 'priority' debts

A Chapter 13 bankruptcy filing results in a debt-repayment plan. Therefore, you are "in bankruptcy" the length of that payment plan, which is usually 3 to 5 years. Because there is a payment plan, you may be able to do things like:

  • Bring your mortgage loan current over a period of up to 60 months
  • Stretch out, reduce the interest or, in some cases, reduce the overall amount owed on a car loan
  • Stretch out priority tax payments and child support or alimony arrears over the course of your payment plan
  • "Strip" off a second mortgage loan (by treating it as a general unsecured debt)

 

A Chapter 13 bankruptcy does not modify your mortgage loan. You will be making your regular monthly payments, plus the amount that is necessary to bring your mortgage current over the length of your plan (plus the amount needed to pay attorney fees, the trustee commission, and other payments required under the plan).

In some cases, if you can show there is not one cent of value in your home above the amount owed on a first mortgage, you can "strip" off a second mortgage and treat it the same way other general unsecured debts are treated in your case. Of course, you have to complete your entire repayment plan to get this benefit.

A Chapter 13 bankruptcy is a good option for people who are trying to save their home and who can afford the required monthly bankruptcy plan payments, deal with priority tax debts and other priority debts, and deal with a car loan that is otherwise too expensive due to high interest rates. Sometimes a client will file a Chapter 13 just for the benefit of reducing interest and stretching out a car loan - adjusting their monthly cash-flow to better handle their other ongoing expenses.

North Carolina Bankruptcy Lawyers

If you are in over your head in debt and are looking for a way out, the Law Offices of James Scott Farrin may be able to help. Call 1-800-220-7321 to set up a free and confidential consultation with a North Carolina Board Certified Specialist in Business and Consumer Bankruptcy Law.

On Bankruptcy and “Doing the Right Thing”

Direction_07312014I have consulted with hundreds of clients over the years who are seeking debt relief. I hear a lot of tales of desperation: People who have gotten in over their heads in debt. People who have tried to pay what they owe but who just can't make any headway, maybe because they've lost their jobs, or maybe because they've gotten sick or went through a divorce.

When I talk to these people, there are two things I hear time and time again: "I tried to do the right thing" and "I never thought I would be here."

Doing the right thing...

By "do the right thing" my clients mean that they have been trying to pay their bills but they just haven't been able to catch up.

Many of my clients have talked to their creditors - or in more recent years, the collection agents that call constantly - and have tried to work out payments they can afford. But these offers of payment are often rejected.

I don't blame the credit card companies for some of these rejections. Sometimes, the amounts are too low and would not cover the continued expense of managing the account. It's often better financially for the company to charge off the debt or file a lawsuit.

But many times, these offers made to the creditors really are the best that many of my clients can afford. They are trying to "do the right thing" by offering to pay what they can.

Times are tough, now more than ever for some people. When these attempts to pay what they can do not work, and when they find themselves continuing to struggle to get by while being hounded by collection calls, many just want to give up.

Some do. But others realize that they need to do something about it. So they do: They call a bankruptcy attorney.

I never thought I would be here...

When I first meet with clients, they often tell me, "I never thought I would be here." What they mean, of course, is that they never thought they would be sitting with me, a bankrup
tcy attorney, looking at whether bankruptcy is a good option to deal with their debts. Most of these clients never thought they would find themselves in a position where they could not handle their debts.

I joke with my clients and tell them, "People want to come and see me about as much as they want to see the dentist." The truth is they probably want to see me even less than they want to see the dentist.

Sadly, there have been many times that I have met with people who have burned through all of their retirement funds trying to pay back their credit cards or other debts. Had they filed for bankruptcy, many of these people would have been able to wipe out those debts and protect their retirement in the process.

Many more clients have taken similar steps by draining their savings or selling their assets to pay back debts in their efforts to "do the right thing," and I think to myself, "I could have saved them money, time, and stress if only they had come to me sooner." However, we work together to focus on what we can do now and for the future.

Even though many of my clients never thought they would be meeting with a bankruptcy lawyer, overwhelmingly, many tell me that they feel such a sense of relief just knowing that they have taken that first step in handling their debts. Many have told me that they feel a huge weight has been lifted.

One of the most rewarding aspects of my job is hearing my clients tell me about the relief they feel when their case is done and they can move forward without those heavy financial burdens they were struggling with when we first met.

If you are struggling with debts, call the Law Offices of James Scott Farrin at 1-866-900-7078 to set up a free consultation and find out if bankruptcy might be the debt solution you need.

Congress Debates Whether to Allow Student Loan Debts in Bankruptcy

Few students can afford to pay for college completely on their own. The majority of students take out at least some form of financial aid to pay for their college education.

Sad10_07012014According to the 2007-08 National Post-Secondary Student Aid Study (the last year for which data is available), 66 percent of undergraduate students finished their degree with some debt, and the average debt was $27,803.

Student loan debt for graduate and professional students such as those attending law school or medical school can exceed $100,000.

Students graduating with poor job prospects in a still floundering economy may find themselves unable to pay back these debts. While many government loans offer income-based repayment plans and other options for those experiencing financial hardship, many private loans do not.

The high cost of student debt and the limited options for those with private loans has spurred some legislators to advocate for allowing private student loan debt to be included in a bankruptcy filing.

Proposed Changes

Changes to the bankruptcy laws in 2005 broadened the definition of the type of student loans that were excepted from a discharge in bankruptcy.  In essence, the changes made private student loans ineligible for discharge in a bankruptcy - except in extreme cases of hardship, for which a petition to the Bankruptcy Court could be made. Federal student loans have been ineligible for discharge unless a showing of "undue hardship" could be made by the bankruptcy debtor for two decades.

Sen. Rick Durbin (D-IL) has proposed allowing private loans to be included in a bankruptcy. A bill was proposed in 2011 to make these changes, and legislators are currently debating it.

Some feel that allowing the change would prompt abuse from student borrowers, but others note that rising tuition costs, high interest rates, and fewer economic opportunities have led to a crisis in student-loan lending and that students need relief where appropriate.

In the fourth quarter of 2011, outstanding student loan debt reached $867 billion, according to the Federal Reserve Bank. Student loans exceed what Americans owe on credit cards and auto loans combined. The Consumer Financial Protection Bureau estimated that total federal and private student loan debt is more than a trillion dollars.

Bankruptcy For Debt Relief

If you are struggling with student-loan debts, you don't have to wait until Congress makes a decision to act. Bankruptcy may be able to provide you some debt relief by eliminating other unsecured debts or providing a debt-repayment plan for your other debts, allowing you to free up the income needed to pay back your student loans. A North Carolina bankruptcy lawyer at the Law Offices of James Scott Farrin may be able to help! Call 1-866-900-7078 to get a free evaluation of your case to find out what type of bankruptcy may be appropriate for you.

Contact Information

Raleigh Law Office

5848-100 Faringdon Place
Raleigh, NC 27609
Phone: 919-834-1184
Toll Free: 1-866-900-7078

Durham Law Office

280 South Mangum Street, Suite 400
Durham, NC 27701
Phone: 919-688-4991
Fax: 800-716-7881

Fayetteville Law Office

517 Owen Drive
Fayetteville, NC 28304
Phone: 910-488-0611
Toll Free: 1-866-900-7078

Charlotte Law Office

1001 Morehead Square Drive, Suite 350
Charlotte, NC 28203
Phone: 704-599-1078
Toll Free: 1-866-900-7078

New Bern Law Office

1505 South Glenburnie Rd, Unit P
New Bern, NC 28562
Phone: 252-634-9010
Toll Free: 1-866-780-3422

Greenville Law Office

702 G Cromwell Dr.
Greenville, NC 27858
Phone: 252-355-5205
Toll Free: 1-866-780-3227

Greensboro Law Office

300 N. Greene Street, Suite 850
Greensboro, North Carolina 27401
Phone: 336-665-7072
Toll Free: 1-866-900-7078

Goldsboro Law Office

214 South William Street, Suite 3
Goldsboro, NC 27530
Phone: (919)-731-2581
Toll Free: 1-866-900-7078

Henderson Law Office

514 Dabney Drive, Suite 200
Henderson, NC 27536
Phone: 252-492-4600
Toll Free: 1-866-900-7078

Roanoke Rapids Law Office

709 Julian R. Allsbrook Highway
Roanoke Rapids, NC 27870
Phone: 252-537-9670
Toll Free: 1-866-900-7078

Rocky Mount Law Office

3202 Sunset Avenue, Suite B
Rocky Mount, NC 27804
Phone: 252-937-4730
Toll Free: 1-866-900-7078

Sanford Law Office

703-B South Horner Boulevard
Sanford, NC 27330
Phone: 919-775-1564
Toll Free: 1-866-900-7078

Wilson Law Office

2315 Airport Blvd Suite A
Wilson, North Carolina 27896
Phone: 252-246-9090
Toll Free: 1-866-900-7078

Winston-Salem Law Office

301 N. Main Street, Suite 2409-C
Winston-Salem, NC 27101
Toll Free: 1-866-900-7078